Gold higher, but only in terms of dollars

Good Morning,

Overnight gains in the U.S. dollar against the euro moderated gold buying overseas and actually gave rise to a modicum of profit-taking among hitherto unflappable speculators. Though dropping to near $1,310 during the wee hours can hardly be called a “correction,” the yellow metal could possibly be exhibiting the first signs that a departure from the norm that has had it notching new records on a daily basis of late could be in the cards.

Monday’s metals market action commenced with modest declines across the boards as the U.S. dollar regained some of the ground it lost last week. Spot gold dealing opened at $1,314.30 per ounce, down $4.30 while silver fell 7 cents to start at $22.02 after a brief overnight dip to under the round figure. Platinum and palladium were off a bit as well, the former losing $5 and opening at $1,670.00 and the latter dropping $4 to start the day off at $569.00 the ounce.

The U.S. currency, meanwhile, climbed to 78.35 on the trade-weighted index following an initial dip against the common currency in the wake of remarks by Premier Wen of China. It may turn out that, no matter what the final intensity of the U.S. economic recovery’s slowdown turns out to be, the rest of the world may just get by without suffering too much.

While the U.S. economic engine still amounts to better than 18% of the roughly $78 trillion global, there is one school of thought (as embodied in Merrill, Credit Suisse, and Goldman analysis) that sees only muted global effects from the rough idle conditions manifested by the former. At the root of it all, is a diminished reliance on U.S. trade. Only a severe case of contraction exhibited by the U.S. economy would endanger the rest of the globe’s economies and revive a deleterious contagion.

The Chinese leader noted that his country will support a stable euro and not reduce its euro-bond holdings. Following that speech (to the Greek parliament, no less) the euro did in fact fade, amid news that Spanish joblessness spiked to above 4 million and that economist Joseph Stiglitz diagnosed the eurozone as possibly terminal “due to competitive tensions within the region.”

Meanwhile, those same smug-as-a-gold-bug-in-a-golden-rug players who have aggressively sold the greenback to buy something yellow with, are now suddenly noting that bullion did in fact rise some six percent over the last month; but did so, basically…only in dollar terms (the metal lost 2.25% in euro translation). Not a development that generally makes for sustained moves to lunar orbit.

Lunar or not, the achievement of the $1,320 price point last week does usher in the possibility of a foray into the ultimate EW target area of $1,375-$1,385 before a larger decline materializes. All of the odds-making about such actions hinges on – you guess correctly – the Fed.

Fed-centric obsession will likely continue all the way up to the November 3 meeting of same. As well, Fed official-originated statements will continue to be parsed with all the care generally reserved for radio signals coming from the SETI program of not long ago. Philly Fed President Plosser told the Financial Times that – to put it bluntly – the Fed must not launch a new round of asset purchases without consideration about what it is that it is trying to achieve, exactly.

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